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Mwantembe v. TD Bank

July 29, 2010

CHAWEZI MWANTEMBE, ET AL.
v.
TD BANK, N.A., ET AL.



The opinion of the court was delivered by: Savage, J.

MEMORANDUM OPINION

Introduction

In moving to certify this putative consumer class action against two banks that allegedly failed to disclose the deduction of dormancy fees*fn1 from gift cards prior to their expiration date, the plaintiffs seek to represent all Pennsylvania residents who purchased from or received gift cards issued by Commerce Bank and TD Bank between 2004 and the present, and whose cards were assessed a dormancy fee. As characterized by the plaintiffs, the "core" issue is whether the banks violated Pennsylvania's consumer protection law by failing to provide any materials with the gift cards designed to inform the holder of the card's issue date. They also contend that the banks breached their contracts with gift cardholders when they failed to properly disclose that the gift cards were subject to dormancy fees, either by not providing this information at all, or by failing to disclose the information conspicuously and clearly enough.

Opposing certification, the banks argue that the plaintiffs cannot meet their burden of proof to satisfy the typicality and adequacy prerequisites for a class action under Federal Rule of Civil Procedure 23(a), nor can they establish predominance and superiority as required by Rule 23(b)(3). They contend that the plaintiffs now assert a single theory: that class members were duped into holding their cards too long and incurring dormancy fees because they were not informed of the purchase date used to compute the period when the dormancy fees would start.*fn2

The banks are correct that a class action is not an appropriate vehicle for litigating this case. The plaintiffs fail to meet the typicality and adequacy prongs of Rule 23(a). Typicality is wanting because none of the three named plaintiffs incurred a dormancy fee because of her failure to know the gift card's date of purchase or because she was not aware that dormancy fees would be charged at some point. Each named class member faces these unique defenses, which are markedly different from those of the putative class members. These same differences result in interests so divergent that the named plaintiffs are inadequate representatives of the absent class members. Finally, the predominance and superiority requirements of Rule 23(b)(3) are lacking -- predominance because the proposed common issues are overwhelmed by the differences among the factual and legal issues affecting individual causation and damages; and, superiority because the proposed class would be unmanageable in light of proving class membership, which would require individualized fact-finding. Therefore, the motion for certification will be denied.

Background

The three named plaintiffs, Chawazi Mwantembe ("Mwantembe"), Margaret Munthali ("Munthali") and Fern Rutberg ("Rutberg"), assert causes of action under Pennsylvania law for violations of the Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. §§ 201-2(3), 201-2(4)(xxi), 201-3 (2008), breach of contract and third party beneficiary on behalf of Pennsylvania residents and Pennsylvania purchasers who held or hold gift cards sold by the banks where dormancy fees were imposed before each card's "Good Thru" date.*fn3 After the banks' motion to dismiss the amended complaint based on the federal preemption doctrine was denied,*fn4 the parties conducted both class certification and merits discovery. Depositions of the three plaintiffs and eight witnesses for the banks were taken. More than 1500 pages of documents were produced. Both sides retained experts who issued reports.

Factual Allegations and Legal Claims in the First Amended Complaint

According to the amended complaint, the gift card at issue is a credit-card sized plastic card with a magnetic stripe on the back. On the front, there appears a "Good Thru" date, in raised, large letters, and the value amount, which is the card's value at the time of purchase. There is no issue date anywhere on the card. In very small print on the back of the card, it states, "Cardholder by using or permitting use of this Gift Card, you agree to the terms and conditions that accompanied the Card." The gift card comes in a prepackaged decorative box which is tied shut. Inside the box, in a hidden pouch within a cardboard folding envelope, a piece of paper containing terms and conditions may be found. Nowhere on the box or on the cardboard folding envelope is there notice of the material terms and conditions related to the card, or notice of the existence of the hidden pouch where the terms and conditions can be found. There is no procedure, such as an 800 number or a website address, available for a cardholder to ascertain the issue date or fees that have been deducted from the card.*fn5

The plaintiffs allege that after the "dormancy period," a set period of time beginning on the date the card was purchased, the banks automatically deduct a $2.50 monthly "dormancy" fee, silently reducing the value of the card prior to the expiration date. Some gift cards are devoid of any disclosure of the dormancy fee on their face. Others contain a non-bolded notice concerning the dormancy fee*fn6 in "minuscule font on the back corner" on the reverse side behind the raised-letter impressions from the front of the card, rendering the notice distorted and unreadable. The plaintiffs contend that even if the cardholder knows that the card is subject to dormancy fees after a set period of time after the purchase date, she cannot calculate the potential diminution in the card's value at a given time without knowing or being able to ascertain the issue date. They also maintain that deducting dormancy fees renders the "Good Thru" date and value amount displayed on the front of the card materially misleading, deceptive and confusing because the card will have either diminished or no value prior to the "Good Thru" date without the cardholder having made a single purchase.*fn7

According to the amended complaint, the banks marketed and sold the gift cards without adequately disclosing the material terms and conditions to purchasers and recipients. Prior to purchase, the banks' representatives never discussed or otherwise disclosed to purchasers the dormancy and replacement fees, or issue and expiration dates.*fn8 Additionally, the plaintiffs allege that the banks' local branches advertising "free" and "no fee" gift cards is deceptive because the advertisements do not disclose the application of dormancy fees.*fn9

The amended complaint essentially defines the proposed class as Pennsylvania residents who purchased gift cards from Commerce Bank and/or TD Bank anywhere, and persons (no matter their state of residency) who purchased the banks' gift cards in Pennsylvania, where dormancy fees and/or replacement card fees were deducted from the card balance prior to the "Good Thru" date as a result of the banks' deceptive course of conduct and advertising. It also defines a subclass as "all intended third party beneficiaries of the contracts between the banks" and the class -- presumably gift card recipients. No time limit is placed on the class or sub-class.*fn10

Factual Allegations and Legal Claims in the Class Certification Phase*fn11

Facts Established in Discovery

Commerce Bank sold the gift cards until May 31, 2008, when it ceased operating, at which time TD Bank succeeded Commerce Bank.*fn12 The gift cards are credit-card-sized pieces of plastic embossed with the Visa logo that can be used anywhere that Visa is accepted. Customers were not charged a fee when they bought the cards. In other words, they received a card for the full value of what was paid. For most of the time period at issue, a monthly "dormancy" or maintenance fee of $2.50 was assessed beginning in the thirteenth month after the date of the card purchase.*fn13 The fee was assessed until the value on the card was depleted, either through purchases, fees or a combination of both. The monthly fee never exceeded the residual value of the card.

A statement of terms and conditions that disclosed the dormancy fee accompanied all gift cards at the time of sale. Prior to the fall of 2007, the dormancy fee was not disclosed on the back of the cards.*fn14 Since the fall of 2007, in addition to being explained in the terms and conditions accompanying each card, the dormancy fee was disclosed on the back of all cards as follows:

A monthly service fee of $2.50 will be deducted from your balance starting on the first day of the month immediately following the 365th day after the date your card was purchased.*fn15

There has always been an 800 number on the cards that could be called to ascertain the card's date of purchase and to register the card. Since 2005, both banks had a website that could be accessed to obtain the card's purchase date and statement of terms and conditions, and to register the card.*fn16

Each card has a "Good Thru" or "Active Thru" date printed on the front as required by Visa. Like an expiration date on a credit card, it is the date when the card no longer works. The cardholder can request a replacement card and then continue to use the card until the balance is depleted.

The banks can trace information about the card's use and the fees that were deducted if the cardholder is the purchaser and had an account at the bank or if the card recipient registered the card. If the recipient did not register the card, it cannot be traced with the recipient's name, unless he or she is still in possession of the card.

Class Definition

In their class certification motion, the plaintiffs narrowed the proposed class definition. The new proposed class definition is as follows:

All Pennsylvania persons and entities who purchased or received Commerce Bank, N.A. or TD Bank N.A. gift cards on which dormancy fees were assessed from 2004 to the present.

Then, in their reply brief, plaintiffs propose to divide the class into two subclasses: one comprised of gift card recipients whose cards were assessed dormancy fees; and the other, gift card purchasers who never gifted the cards or whose recipients assigned their rights regarding the card back to them.*fn17

UTPCPL Claim

Although the plaintiffs continue to assert claims based on a violation of the UTPCPL, breach of contract and third party beneficiary, they have trimmed the factual allegations for these claims. The factual basis for their UTPCPL claim, which they initially describe as forming the crux of all of their claims, is that the banks engaged in a deceptive practice in which they intended to "trick and confuse consumers" into not retaining or claiming the full value of the card by failing to provide any materials with the card designed to inform the cardholder of the card's issue date.*fn18 Because the dormancy fee is tied to the card's issue date, even if the cardholder knows the card is subject to a dormancy fee after a set period of time starting on the card's purchase date, she cannot determine the value of the card or the potential loss in value unless she also knows the issue date. The plaintiffs also contend that deducting dormancy fees renders the "Good Thru" date and value amount displayed on the front of the card materially misleading, deceptive and confusing because the card can have either diminished or no value prior to the "Good Thru" date without the cardholder having made a single purchase.*fn19

Breach of Contract/Third Party Beneficiary Claims

The foundation for the breach of contract and third party beneficiary claims rests upon the banks' alleged failure to properly disclose that the gift cards were subject to dormancy fees by failing either to provide this information at all, or to disclose the information conspicuously and clearly. Specifically, there was nothing regarding a dormancy fee on the actual gift cards from 2004 through 2007. Since 2008, a dormancy fee was referenced on the back of the card, but it was much smaller than all other information on the card. In inserts accompanying all of the cards, information regarding the dormancy fee was not in bold or set off from the other fine print, or the insert itself was hidden in the gift card box. Because they are not aware of the dormancy fees, purchasers and recipients of the gift cards cannot get the full benefit of the bargain entered into by the purchaser and the bank.

The plaintiffs also assert that because these contract terms regarding the dormancy fees unreasonably favor the bank, and the gift card purchasers did not have an opportunity to negotiate the contract terms, it is a contract of adhesion,*fn20 rendering the dormancy fees unenforceable. In that case, the collection of the dormancy fees is a breach of contract, and the fees deducted constitute the damages resulting from the breach.*fn21

Facts and Claims Post-Discovery

Based on the new proposed class definition, the plaintiffs no longer assert any claims based on fees other than dormancy fees, e.g., replacement card fees. In addition, they have abandoned their false advertising claim based on the banks' advertising "free" and "no fee" gift cards, because, according to plaintiffs, "Pennsylvania law precludes certification of such actions."*fn22

It is undisputed that the issue date has never been imprinted or labeled on the card itself, and that no insert stated the issue date.*fn23 However, the plaintiffs' allegation that there is no procedure, such as an 800 number or a website address a cardholder can use to ascertain the issue date or fees that have been deducted from the card, is incorrect. The banks have shown, by a preponderance of the evidence, that a cardholder could always obtain the issue date, balance on the card and actual fees deducted using an 800 number; and since 2005, a website could be used to obtain the same information.*fn24

Facts Pertaining to the Three Named Plaintiffs

Chawezi Mwantembe Mwantembe purchased five to seven gift cards from Commerce Bank in December of 2005 through 2007. She gave them to relatives who live abroad, and to her children and niece who live in Pennsylvania. She has never received any gift cards.

She never read the terms and conditions written on or that accompanied the cards. At the time she purchased the gift cards, she assumed no dormancy fees would be assessed. Although she does not know if any specific fees were charged against any of the cards, she suspects there was some kind of fee deducted in 2005 when her son's card was declined for lack of value when there should have been money left on it.

Of the three cards the banks have records of Mwantembe purchasing, only one of them incurred any fees. That card, purchased on December 24, 2005 for $100, had a balance of only 29 cents after $99.71 had been spent between December 27, 2005 and January 10, 2006. Almost one year after the card was last used, a 29-cent dormancy fee was assessed on January 3, 2007.

Mwantembe wants the fee refunded to her, reserving the right to choose whether to give the fee ...


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